CASE STUDY OF SYCO INC PRESENTED: 09 OCTOBER 2009 QUESTION 1A Syco Inc’s choice to enter the non-retail business through acquisition is because it aimed at increasing its market power and presence into their non-retail business by acquiring the already established companies. Acquisitions made it easier for Syco Inc to overcome the entry barriers that would have restricted its success in entering the non-retail industry and establishing its self in these industries.
Acquisitions also reduced the costs and risks of new product development for Syco Inc which ultimately resulted to quick market entry and expansion. Because the various non-retail businesses were already in the market and were widely accepted, the businesses were less risky to acquire together with their network of customers. Returns were more predictable because the performance of the acquired firms was accessed prior to completing the acquisition.
Don’t waste your time!
Order your assignment!
Acquisition as an entry strategy into the non-retail industry helped Syco Inc to increase/broaden its business scope into new markets. Acquisition made it easier to enter a market that Syco Inc had never operated in before as it had no experience on how to go about establishing itself, therefore acquisition eased its entry by acquiring the already established businesses. Lower risk compared to developing new products ??? outcomes were estimated more easily and accurately than the outcomes of an internal product development process, managers viewed acquisition as lowering risk.
Syco Inc had always been involved in retailing and that has been its primary business and focus, now the company wanted to broaden its competitive scope by entering into other markets where it can form a sustainable position in. Acquisition was the most viable choice as it offered Syco Inc a quick and large access into the non-retail business. Increased diversification ??? it was difficult for SI to develop products that work different from retailing and they lacked experience in those markets
Acquisition provided Syco Inc with the opportunity of learning and developing new skills and capabilities that was by acquiring the non-retail businesses. Syco Inc aimed at increasing its skills and knowledge both about the retailing and non-retailing business, in this way it was be able to combine the newly acquired and old skills to compete more rapidly. This has reshaped the firm’s competitive scope so to reduce and to lessen their dependence on the retailing business’s financial performance.
QUESTION 1B No, acquisitions are relatively the fastest and quickest mode on entry into a new market and they do provide the opportunity of quick market expansion, but, the disadvantage is that they require huge amounts of money which will eventually lead to financial problems for the acquiring firm (Syco inc. ). There is a high shift in capital investment which could have been used to improve and gain competitive advantage in Syco’s core business.
The acquired firms does not create synergy with the core business in terms of, there is high industry variation in the acquired companies to the Syco Inc. Syco Inc has no knowledge about the industry and its competing requirements. There are differences in corporate cultures and managements procedures among the firms. Syco Inc. Has no knowledge about the industries they are entering. SI is in the retail industry and it has no knowledge regarding what is required to be a sustainable competitor and the trends that are affecting the industry potential.
SI also does not have the experience to market and compete with other key players in the market. There could be a high loss of managerial performance from the core business and more concentration on the acquired firms; this can harm the performance and competitiveness of the core business. QUESTION 2A Syco Inc overlooked the part of integrating these newly acquired business units with their retailing business (retail and non-retail), they treated the two markets totally different and separately.
They should have integrated the two business units’ corporate cultures, financial control systems, accessed the different target markets, working relationships and improve the status of the newly acquired firm’s corporate structure. Syco was unable to create synergy among the firms. Entering an unknown industry which has sustainable key competitors increased the competitive rivalry, and firms which have knowledge and a higher market dependency (unlike Syco Inc. will implement strong strategic and tactical actions in an attempt to secure their market share and position. Managing the various business units became too much for Syco Inc’s management because of the increased diversity due to the large number of acquisitions and they focused more on the acquisitions and less on their initial retail businesses, which eventually lost its once dominant position in the retail industry.
The integration of the firms became too large- additional costs required to manage the larger corporate portfolio exceeded the benefits of the economies of scale and enhanced market power. QUESTION 2B Syco Inc. should just focus on the retailing business that they started and are known for, the company should work towards improving and gaining back its initial position that it once owned.
Wal-Mart is a very powerful competitor and has a large loyal customer network; this then means that Syco should revamp its competitive strategy. From the acquired revenue from the sales of the other firms SI should reinvest the capital in the core business. Investments should be made in section of the corporate that will influence the company’s’ 4Ps and its primary and secondary activities that would allow the firm to gain back its competitive advantage in the industry.